All but one in the bear market area
People wait in line for T-shirts at a pop-up kiosk for online broker Robinhood on Wall Street after the company went public earlier in the day in New York City on July 29, 2021 was.
Spencer Platt | Getty Images News | Getty Images
This year’s bull market in tech IPOs has turned into a bear.
The recent fall in the stocks of high-valued, high-growth, and money-losing companies has resulted in oversized sell-offs in companies that entered the market in 2021. CNBC identified 55 tech companies that debuted in the US this year through an IPO, special purpose acquisition company, or direct listing. Only one of them – GlobalFoundries – is less than 20% cheaper than the high price.
That means the rest is in the bear market area, typically defined as a 20% or more decline from its peak. Ten of these companies have slipped at least as much in the last week alone.
Worse still, 23 of these companies have lost half or more of their value since hitting their highs, including Robinhood, which fell 74% in early August, and LegalZoom, which fell 58% since its high in July. All prices are as of Monday.
Investors who opt for a basket of offers in the hope of building a diversified portfolio have not found safe havens. The Renaissance IPO ETF, which tracks stocks of companies that have wanted to go public in recent years, is down 18% in the past three weeks, down 26% from its February record. The top positions in the index are Moderna, Uber, Snowflake and Zoom.
Across the tech sector, companies are plagued by soaring inflation and looming interest rate hikes that require additional debt to subsidize growth. When investors flee to safety, the hardest hit are employees and other insiders of the companies who have not yet got through their blocking period after the IPO, which usually lasts up to six months after the offer.
Rivian Insiders, for example, are locked up until mid-2022, leaving them fully exposed to the electric vehicle maker’s 35% decline in shares since mid-November. Freshworks, a Salesforce competitor, is down 50% from its peak last month, and insiders are banned from selling until early next year.
Rivian is still trading well above its $ 78 IPO, but the recent slump has dragged Freshworks below its asking price. Of the 10 most valuable tech companies that went public in the US this year, six are still above their IPO or, in the case of direct listings, above their first trade. Coinbase, Didi, UiPath, and Robinhood are the four that fell below their original prices.
Cloud software provider GitLab, which is down 35% from its November peak, is also expected to be phased out in early 2022. The news worsened for GitLab employees on Monday as the stock fell another 9% in extended trading and it left just above the IPO price. GitLab had better-than-expected revenue as a publicly traded company in the first quarter, but that didn’t seem to matter.
For some newly listed companies, lock-ups are not an issue. Half a dozen US tech companies went public this year through direct listing, allowing existing investors to sell immediately instead of adding cash to their balance sheets.
While direct listings are still used by a small minority of venture-backed companies, they have gained significantly in importance this year. Before 2021, only four well-known companies – Spotify, Slack, Palantir and Asana – had chosen this route into the public market.
That year Roblox, Coinbase, Squarespace, ZipRecruiter, Amplitude, and Warby Parker all debuted via direct lists. Shares are each between 20 and 50% below their highs, but employees have had the opportunity from day one to sell their vested shares in the open market and cash in at least some of their profits.
Tech SPACs were just as problematic for public investors as IPOs and direct listings. Auto insurer Metromile, whose technology enables drivers to pay by mile instead of a monthly fee, has seen the IPO group’s biggest slump, falling 89% from its high in February, shortly after the SPAC merger was completed.
Among other SPAC listings, the neighborhood social network Nextdoor is 47% below its November high and online lender SoFi is down 44% in 10 months. The BuzzFeed media site was not included in the data for this story because the company didn’t complete its SPAC merger until Monday. But it was a troubling start as the stock fell 11% on opening day.
The tech market revaluation could impact the few remaining IPOs this calendar year and possibly through 2022.
HashiCorp is slated to go public this week, and the cloud infrastructure software company is targeting a valuation of approximately $ 13 billion based on its initial price range. However, those expectations were set last week before the tech market crammed in, and investors can now pay more attention to the company’s $ 22 million loss in the last quarter, which expanded from $ 9.3 million last year.
Next week, Samsara, whose technology connects physical products to the cloud, is due to hit the market with a valuation of about $ 11.5 billion, according to the updated prospectus released on Monday. Samsara’s loss decreased to $ 32.4 million in the most recent quarter from $ 54.3 million in the year-ago period.
SEE: Why there is so much volatility in BuzzFeed after SPAC